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Miners rally as investors pile into the precious metal, but Centamin falls behind after rare ‘sell’ note
Thursday 03 Jun 2021 Author: Yoosof Farah

After retreating from its all-time highs as markets started rallying from November 2020 onwards, gold is starting to make a comeback having topped $1,900 an ounce for the first time since the start of January.

Data from Bank of America at the end of May shows gold has seen in its largest inflows in 16 weeks with $16 billion of investors’ money piling into the commodity.

One of the hottest questions in the finance world in 2021 has been whether the inflationary pressures markets are currently seeing are just going to be temporary or persist for longer than central banks are expecting.

Parts of the bond market are signalling it could be the latter with long-term inflation expectations rising to their highest since 2013 and yields on another safe have asset, 10-year US treasuries, falling. Gold and treasuries are negatively correlated, so when yields fall gold becomes more attractive because there is no benefit to holding bonds.

Also there are suggestions that the recent volatility in cryptocurrency bitcoin, which was being flagged as an alternative inflation hedge to the precious metal, has driven institutions back to gold.

The recent rally in gold has lifted mining stocks. The widely followed NYSE Arca Gold BUGS Index of gold mining companies has gained 22% since the start of March.

This performance, albeit to a lesser extent, has been replicated by gold miners on the London market, but there a few who have failed to keep up due to stock-specific issues.

One of the most notable examples is FTSE 250 gold miner Centamin (CEY), with its shares wobbling after analysts at broker Liberum put a rare ‘sell’ rating on the stock in an initiation note.

Giving it a price target of 82p, compared to its current price of 110p, Liberum argues that while its ‘strong’ balance sheet gives it the resources to finance the turnaround of its flagship Sukari gold mine in Egypt, the shares are overvalued at present.

Using an 8% discount rate and assuming $46 per ounce of resource at its West Africa assets, at a market price for gold of $1,800 per ounce Liberum estimates Centamin’s net asset value is 85p per share, giving 30% potential downside compared to its current share price.

In other gold-related news Canadian miner Endeavour Mining, which made a series of failed takeover bids for Centamin in 2019 and 2020, is set to list on the premium segment of the London Stock Exchange on 14 June, making it eligible for the FTSE indices.

The $6.1 billion market cap Toronto-listed miner has been eyeing up a London listing for around a year, with its management already based in London, as it looks to bolster its liquidity and appeal to more mainstream investors, with the company also wanting to get exposure to tracker funds that follow the FTSE 100 and FTSE 250.

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